5 Big Myths About Your Credit, Debunked.

The internet is filled with rumors, misinformation, and scammers deliberately misleading people who just need some help. Here’s the facts about credit, from people who know. (That’s us!)

There are a lot of myths and misconceptions floating around relating to your FICO® Score or credit report. Working in this industry, I get a lot of questions that absolutely blow my mind. Just this week someone told me they thought that getting a credit card with 0% APR for 18 months meant that they were not obligated to pay anything until after those 18 months. Another individual thought that getting a secured credit card meant they had to pay twice as much as someone with an unsecured credit card.

Remember, just because something is put in your credit report doesn’t mean it will be counted in your score. Scoring systems are software, and software has to be written in a way so it identifies and considers new items. It’s not arbitrary, it’s based on science.

Your FICO® Score is partially determined by the length of your credit history. Information related to “time in file” makes up about 15% of your overall score. That means your FICO Score takes into consideration the age of the oldest account and the average age of the accounts on your credit report.

A closed account will usually continue to remain on your report for many years after it has been closed, thus the age of the account will still be taken into consideration by the credit scoring model until the time it’s removed from your credit report. However keep in mind, a change in your credit utilization ratio could also lower your score.

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You need to carry debt in order to build credit

It’s not necessary to be heavily indebted in order to establish a credit history or to have a good FICO® Score. However, it is usually better for your credit score if you show recent moderate and responsible use of credit rather than not using credit at all. It’s just as important to consistently pay down credit card balances because it helps lower your credit utilization ratio.

If you pay your balance off before the statement closing date, you then forego the grace period while still being able to use your card without any balance reflected on your report.

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Lenders are legally obligated to report your account activity

There is actually no law requiring banks, lenders or any other entity to report your account activity to a credit reporting agency. The law just states that what they choose to report must be accurate.

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Unpaid medical debt is treated differently in your FICO Score

Unpaid medical debt is usually reported to a consumer’s credit report once it’s sent to collections. Collections reported on a credit report have a negative impact on your FICO Score as research shows they are predictive of credit risk. The degree of impact varies based on the information reported as well as other information on your credit report.

With newer versions of the FICO Score, small dollar collections (original amount less than $100) are bypassed by the score.

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A short sale is better than a foreclosure for your credit

Both short sales and foreclosures have a similar impact on your FICO Score, as both are considered to be defaults on the obligation which is what the FICO score is designed to predict.

There is a further differentiation if there is a deficiency balance owed and reported following the short sale. When a deficiency balance is reported, it will negatively affect your score more than a short sale with no deficiency balance.

INDIVIDUAL RESULTS WILL VARY. If you need legal or tax advice, you must consult with a licensed attorney or professional tax advisor. All claims relate solely to enrolled, unsecured debt, upon successful program completion. Not all creditors will negotiate unsecured debt. Some services are not available in all states. Some services are referred out to outside companies. Bright Credit LLC does not provide legal, tax or investment advice.